Young v Sherman

The appeal concerned a deed of company arrangement entered into by a company, Mr Sherman, MJ Mason Holdings Pty Limited, and SRM Holdings Pty Limited. The dispute arose from a premium payment made to creditors to induce them to enter into the deed, which the appellants argued was contrary to public policy. The matter was heard in the Court of Appeal of New South Wales.

The central legal issues before the court were whether the premium payment rendered the deed of company arrangement void as being contrary to public policy, and whether the administrator's exercise of a casting vote in favour of the deed, without full disclosure of relevant matters to creditors, invalidated the deed. The court was required to consider the application of sections 445D and 600B of the *Corporations Act 2001* (Cth) and regulation 5.6.21 of the *Corporations Regulations 2001* (Cth).

The Court of Appeal found that the premium payment was indeed contrary to public policy and therefore rendered the deed void. The court reasoned that such payments undermine the integrity of the insolvency process and the principle of equal treatment of creditors. Furthermore, the court held that the administrator had failed to disclose all relevant matters to the creditors, which was a requirement for the proper exercise of their powers and for the validity of the deed. Consequently, the court allowed the appeal, set aside the previous orders dismissing the originating process, and ordered that the deed of company arrangement be terminated. The proceedings were remitted to the Equity Division for further consideration, and the respondents were ordered to pay the appellants' costs.